Filing for the right tax credits has the potential to knock thousands of dollars off your tax bill -- and could even put some money back in your pocket. Find out which credits you qualify for in this article and learn how to save money on your taxes this season.
What Is a Tax Credit?
A tax credit can be used to reduce the total cost of a tax bill. Eligible individuals can file for tax credits that will help cover the cost (or refund a portion of the cost) for a myriad of different expenses, such as tuition fees, daycare payments, and even certain solar-powered home improvements. Tax credits are awarded by the IRS to qualifying individuals based on a combination of different factors that vary per tax credit.
In this article, we’ll explore the three main tax credit categories that individuals can file for.
Self-Investment Tax Credits
Believe it or not, the Internal Revenue Service is not your enemy. In fact, the IRS provides tax credits that are specifically designed to benefit individuals who are taking action to create a better future for themselves.
Lifetime Learning Tax Credit
This education tax credit is available to help fund the pursuit of continued education for eligible college students and is worth up to $2,000 per tax return. This thoughtful tax credit can help you pay your way through your undergrad studies, graduate programs, and even professional degree courses -- so long as you are pursuing a continued education to “acquire or improve job skills,” as stated by the IRS themselves.
The Retirement Saver’s Credit
The saver’s tax credit is awarded to those who invest in their futures by putting money into an approved retirement plan, such as a 401k, an IRA, etc. The going rate for this tax credit is anywhere between 10-50% of up to $2,000 worth of contributions to a qualified retirement plan. So, if in the last year you’ve acquired $2,000 or more in your retirement plan, you may be eligible for a saver’s tax credit anywhere between $200 and $1,000.
Dependent Care Tax Credits
Whether you’re taking care of children, close friends, or family members, there are a few tax deductions you’ll want to take advantage of to help you stay on top of things.
Child Tax Credit
This particular credit is granted to individuals within a certain income bracket who have children under the age of 17. If you qualify, you can knock thousands of dollars off your federal income tax bill -- up to $2,000 per child. The child tax credit can also be applied for dependents over the age of 18 years, but for only $500 per dependent.
The child is your own. Adoptive parents must file for an adoption tax credit.
You are claiming the child as a dependent on your tax return.
The child must be a U.S. citizen who has lived with you for more than half of the tax year.
You fall below the predetermined AGI income threshold.
The Child and Dependent Care Credit
The child and dependent care credit is for those hard-working individuals who pay someone to watch over their dependents so that they can earn a living. The most popular qualifier is daycare expenses. If you qualify, this tax credit can cover 20-30% of total care expenses incurred throughout the year. With as many working parents as there are in America, the child and dependent care tax credit is wildly underutilized.
Your child was below the age of 13 during the period of care.
Non-child dependent was incapable of self-care and lived with you for more than half of the tax year.
Federal Earned Income Tax Credit
The federal earned income tax credit is one of the precious few "refundable tax credits," which means that you can actually receive a check from the IRS -- instead of writing them one.
This golden nugget tax credit is absolutely one worth trying for, as it can save you loads of money on your tax bill, or even put you in the green. There are several qualifiers for this refundable credit, including your marital status, how many kids you have, and how much you make each year.
To qualify for this tax credit, all you have to do is earn and report your income completely above board. Read the IRS guidelines to learn more.
Environmental Tax Credits
When you give back to the environment, the IRS gives back to you -- so long as you qualify. If you pride yourself in being an active environmentalist, you may be eligible for tax credits.
Electric Car Credit
If you swapped out your oil-burning vehicle for a new one that can run off rechargeable batteries, you could save a huge chunk of money on your tax bill -- and we mean huge. Depending on your eco-friendly vehicle’s battery capacity, you could qualify for a tax credit that ranges anywhere from $2,500 to a glorious $7,500.
Of course, it’s difficult to put a price on an eco-conscious decision of that magnitude, but a solid seven grand isn’t a bad place to start.
Residential Energy Credit
If you were unsure about whether or not you’d get your money’s worth out of those solar panels, you can rest a little easier knowing there’s a tax credit that rewards converting to solar energy. If you’ve made any big solar-powered improvements to your home, you may qualify for a residential energy credit that can amount up to 30% max of the total cost of your solar energy system.
Save More Come Tax Season
We hope that you were able to learn a great deal from this article and that you’ll use the information to better your financial stability when it comes to tax season. Check out more of our resources and learn how to save money on taxes.